Fitch Ratings expects that due to the slowdown in the domestic economy, ongoing geopolitical tensions, and tightening regulatory measures, the market sentiment is weak. Chinese securities firms will continue to face profit pressures in the second half of this year. Nevertheless, financial reforms aimed at creating a high-quality capital market will benefit the long-term business development of brokerage firms.

China's securities industry achieved a net profit of 80 billion RMB in the first half of this year, a year-on-year decrease of 18%, with an average return on equity of 5.4%. Self-operated trading income increased by 10% yearly, accounting for 41% of total revenue, driven by increased fixed income portfolio yields following domestic interest rate cuts. However, this growth was offset by a drastic contraction in investment banking income.

Given that regulatory institutions have been strictly setting risk control indicators for innovative and high-risk businesses to prevent significant losses, securities companies generally maintain lower capital allocations in a stagnant market. This helps keep leverage ratios in the industry low and stable even in a soft revenue environment.

Fitch Ratings anticipates that securities companies will maintain conservative leverage usage in the challenging market environment. Leading companies in the industry are actively expanding asset management businesses to increase business diversification and improve profit quality. Despite asset management business contributing only 7% to industry revenue, for the top ten brokerage firms, this reaches 13%. Fitch Ratings expects this contribution to gradually increase.

Fitch Ratings also predicts that the evolving regulatory environment and continuous industry consolidation will further promote the segmented development of the securities industry. Financial reforms aimed at promoting direct financing and strengthening capital market order may bring more opportunities to securities firms, enhancing their risk management infrastructure. Leading securities firms are more likely to benefit from these trends.

Chinese securities firms rated by Fitch Ratings benefit to varying degrees from special support. Given the critical role these companies play in promoting capital market reforms and supporting strategically important industries, Fitch Ratings expects the relationships between them and their respective shareholders to remain unchanged in the medium term.